Bank of Ghana denies closure of forex accounts directive

News in some sections of the Ghanaian media says the Bank of Ghana is planning to issue a directive to commercial banks to close all foreign currency accounts held by individuals and organisations and convert these to cedi accounts.

The action according to the reports is the central bank’s strategy to curb the depreciation of the cedi, the national currency.

But the central bank has issued a statement denying the reports.

In the statement issued Friday June 8, 2012 and copied to ghanabusinessnews.com, it says,”the Bank of Ghana’s attention has been drawn to media reports being attributed to the Bank that it is planning on closing all foreign deposit accounts and has instructed that a 2% per annum charge be levied on all foreign deposit accounts in the banks.

The general public and all stakeholders are assured that the Bank of Ghana has not taken any such decision.”

According to the central bank, the recent policy measures taken by the Bank are intended to make cedi assets more attractive to hold.  It has been observed that the measures are beginning to have the desired effect on the cedi.

“The Bank of Ghana therefore wishes to assure the general public and all stakeholders that it is committed to ensuring the stability of the cedi.”

Despite the country being on track to achieve projected economic growth of 7.5% for 2012 the cedi has weakened considerably against the US dollar over the past year.

The Bank has earlier said the cedi depreciated against the US dollar by 8.3% during the first quarter of 2012. “In the first quarter of 2012, the cedi depreciated by 8.3% against the US dollar, compared to 2% depreciation in the same period of 2011. The real effective exchange rate depreciated by 4.1% in the first quarter of 2012,” it had said.

And there has been a high demand for the US dollar.

The central bank cited trade between Ghana and China as one of the reasons for the high demand in foreign currency.

“…the changing nature of our trade pattern which is shifting towards Asia, especially China, in which transactions are mostly conducted on cash basis. The absence of correspondent banking relationships between Ghanaian banks and their Asian counterparts has contributed to the reliance on cash,” the governor, Mr Kwesi Amissah-Arthur said at a news conference in Accra.

He also said there is the speculative activity by foreign exchange traders trying to profit from the depreciation of the currency as other market participants try to hedge against further depreciation thereby exacerbating the situation.

The news of the abolishing of foreign currency accounts is causing tension in the business community and it is believed some individuals have started withdrawing their foreign currencies from local banks in the country.

Meanwhile, none of the news reports has cited any central bank official.

Checks at the central bank by ghanabusinessnews.com, indicates that most of the economists and officials of the Bank are unaware of any plans to issue the directive or which department of the Bank is responsible.

Speaking to ghanabusinessnews.com, Prof. Joe Abbey, the Executive Director of the Centre for Policy Analysis (CEPA) said the holding of foreign currencies in accounts in Ghana is a speculative activity on expectation that the cedi’s value would fall.

He also indicated that the commercial banks are also keeping reserves in foreign exchange above the mandatory minimum nine per cent.

“The banks themselves are locking up large sums of supply of foreign exchange,” he said.

He said by holding their reserves in foreign exchange, the commercial banks are not releasing foreign exchange into the system.

On the planned directive to abolish foreign accounts he said, “I don’t believe the Bank of Ghana will do that.”

He said it is likely the directive was to the commercial banks to hold their reserves in cedis which someone might have leaked out to the media. “But not in the context that the Bank of Ghana might have intended it,” he said.

By Emmanuel K. Dogbevi